Inside Iran’s Crisis: Why the Regime Endures Despite Economic and Social Strain
Bree Stewart
Key Takeaways
Iran faces deepening economic collapse and structural isolation. Living standards are falling, and the state can no longer offer economic security in exchange for political obedience.
Despite widespread unrest, the Islamic Republic remains resilient. Power is dispersed across elites and security networks, limiting the risk of internal collapse.
Proxy networks and military engagement continue but yield diminishing returns. External regime change is unlikely without a rare convergence of internal unrest, credible successors, and precision capabilities.
A Crisis of Survival, Not Reform
Iran has entered a fundamentally different phase of internal crisis. Economic collapse, social exhaustion, and strategic overextension are now interacting in ways that distinguish the current period from earlier cycles of unrest. Protests are no longer driven primarily by demands for reform or liberalisation. Instead, they reflect widespread economic distress. Inflation has risen above 40 percent, real incomes have fallen sharply, and the currency has collapsed, with the rial trading at roughly 1.6 million to the pound as of February 2026.
Today’s protests are rooted in material hardship. Falling purchasing power, food insecurity, and the steady erosion of basic living standards now shape public anger more than political ideology. Iran’s economic isolation has become structural rather than episodic, driven by sustained sanctions, financial exclusion, and a weakening state capacity to manage the economy. At the same time, the regime’s regional and nuclear strategies have failed to deliver sanctions relief or measurable economic relief. Together, these pressures point to a deeper breakdown of the post-revolutionary social contract. The state can no longer credibly offer economic security or dignity in exchange for political obedience.
These factors point toward a prolonged period of instability rather than imminent regime collapse. The Islamic Republic retains strong coercive capacity, but its ability to recover legitimacy or sustainable economic functionality is increasingly constrained.
Historical Context: Foundations of the Current Crisis
The 1979 Revolution and the Founding Bargain
The Islamic Republic emerged from the 1979 Iranian Revolution, combining nationalist, religious, and redistributive impulses. The overthrow of the Shah replaced a pro-Western monarchy with a system fusing clerical authority and republican structures. The implicit bargain offered by the new state rested on three pillars: resistance to foreign domination, social justice for the poor, and moral governance. This narrative, particularly the promise of independence from external control, underpinned regime legitimacy for decades, especially among lower income groups who benefited from subsidies, state employment, and redistribution.
War, Sanctions and the Rise of the Security State
The 1980–1988 Iran-Iraq War entrenched militarisation and securitisation at the core of Iranian governance. Emergency rule became normalised, empowering revolutionary institutions while sidelining civilian authority. Over time, the Islamic Revolutionary Guard Corps (IRGC) evolved from a defensive force into a central political and economic actor. Sanctions and financial exclusion shifted from episodic pressure to permanent conditions, reinforcing this trajectory. Security linked networks expanded into construction, energy, logistics, and finance, creating a rent based political economy that rewards loyalty, limits competition, and entrenches regime resilience.
The JCPOA and the Closing of the Reform Window
The 2015 nuclear agreement, known as the Joint Comprehensive Plan of Action (JCPOA), briefly reopened the possibility of economic reintegration. Sanctions relief supported modest growth and raised expectations, particularly in urban Iran. In 2018, the U.S. withdrew from the deal, citing concerns over Iran’s missile programme, regional influence, and the temporary nature of some nuclear restrictions. The withdrawal ended sanctions relief and undermined reformist strategies, reinforcing elite scepticism about engagement with the West. The collapse of the agreement accelerated capital flight, currency devaluation, and elite consolidation around hardline narratives that resistance is essential for regime survival. As sanctions returned and economic conditions deteriorated, the window for meaningful reform closed decisively.
Power Structure and Regime Resilience
Iran’s stability is shaped by a complex distribution of power. At the top, the Supreme Leader acts as an arbiter among competing elites rather than a direct policy manager. Below this, the Islamic Revolutionary Guard Corps operates as both a coercive force and an economic actor with vested interests in maintaining the system under sanctions.
Elected institutions retain administrative responsibility but have limited strategic autonomy. Civilian governments manage decline rather than drive recovery. This fragmentation strengthens regime resilience: no single faction is fully responsible for failures, and dissent can be channelled, suppressed, or absorbed. Internal rivalries exist, but they are mediated within the system rather than threatening it. There is no unified elite bloc pushing for systemic transformation, only tactical disagreements over how best to ensure survival.
Why This Protest Wave Is Different
Earlier protest movements in Iran were largely urban and middle class, centred on political rights, cultural freedoms and electoral grievances. These movements were largely contained through selective repression without destabilising the broader system.
The current unrest is driven by material hardship. Rising inflation, food insecurity, and currency collapse have pushed large segments of the population into subsistence conditions. The poorest and most peripheral communities are now among the most affected. Purchasing power has fallen sharply, savings have evaporated, and state subsidies no longer offset basic costs.
This shift has strategic significance. Poverty-driven unrest is harder to suppress because it is continuous rather than episodic. Economic distress does not require mobilisation, leadership, or ideology. It spreads through prices, wages, and household stress. While political dissent may be fragmented, material deprivation continues to grow.
Iran as a Pariah Economy
Iran’s exclusion from the global economy is now embedded rather than reversible in the short term. Comprehensive sanctions, financial de-risking and IRGC designation have severed access to banking, insurance and investment networks. Oil exports continue through opaque channels, relying on deep discounts and intermediaries, creating a dual economy. A shadow system benefits connected elites and security-linked firms, while the wider population bears the cost of inflation and scarcity. Economic exclusion has shifted from a pressure mechanism to structural stagnation. Sanctions have not toppled the regime, but they have weakened state capacity. Infrastructure investment has stalled and human capital is leaving. The economy now sustains the regime but not society.
Iran’s regional posture is also under strain. Proxy networks that once extended influence now impose costs. Hezbollah is constrained by Lebanon’s economic collapse. The Gaza conflict has exposed the limits of proxy deterrence. Yemen continues to drain resources without delivering strategic outcomes. At the same time, the nuclear strategy has increased military exposure without achieving sanctions relief. Intelligence penetration by Israel and the United States has highlighted regime vulnerabilities and reduced deterrent ambiguity. Iran retains disruptive capacity, but its ability to translate regional activity into strategic gain is declining. Iran’s capacity to project influence externally appears increasingly constrained by internal pressures, even as it maintains proxy networks.
Appetite for Regime Change Inside and Outside Iran
Internally, there is widespread dissatisfaction but limited unity in revolutionary risk. Many Iranians seek relief over rupture and the memory of regional state collapse acts as a deterrent. Protesters express rejection of the current system but are not united around an alternative political project. Externally, there is no coordinated effort to pursue regime change. Western governments prioritise containment over transformation. Regional actors hedge rather than confront and there is no credible successor structure or opposition coalition to engage. The regime endures because alternatives are undefined and risks are high.
While the United States has deployed military assets and signalled pressure on Iran, any attempt at coercive regime change would be far more challenging than recent operations elsewhere, such as in Venezuela. Iran’s defensive capabilities, geographic depth, and domestic support make intervention costly and unpredictable. Public opinion in the United States also shows limited appetite for another Middle East conflict, and there is no clear plan for governance should the regime be disrupted. External regime change could become conceivable only if several difficult conditions align: sustained internal unrest with elite defections, a clear successor authority ready to govern, and the capability to conduct precise, intelligence-led operations that degrade regime control without triggering significant civilian harm or a power vacuum. At present, none of these conditions are close to being met. Such an outcome remains hypothetical and would require a rare alignment of internal and external factors. As a result, external coercive change remains unlikely in the near term, with Western policy focusing instead on containment, sanctions, and diplomacy.
Outlook
Iran is likely to experience continued cycles of protest and suppression, accompanied by gradual economic decline. Living standards will deteriorate further as inflation remains high and the currency stays unstable. The regime is more likely to survive as a crisis manager than to recover as a developmental state.
Possible Scenarios:
Prolonged Managed Decline: The baseline scenario is a state strong enough to suppress unrest but too weak to deliver major improvements. This carries persistent risks for regional security and global energy markets, which remain sensitive to volatility linked to Iranian instability.
Limited Elite Reforms: Under internal pressure, elite reshuffles or incremental economic adjustments may occur. These changes would be tactical rather than structural, unlikely to restore broad economic confidence, but could temporarily ease some pressures.
Escalation and Miscalculation: Sustained internal pressures may prompt the regime to take limited external actions to shore up domestic legitimacy. Even contained escalation could heighten regional insecurity and energy price volatility, underscoring the persistent risks of miscalculation.
Implications for the International System
Iran is likely to remain a persistent source of regional risk. Proxy conflicts will continue alongside deeper militarisation. Energy markets remain exposed to geopolitical shocks, reflecting the country’s enduring influence. Bilateral ties with China and Russia are expected to persist, providing Iran with diplomatic cover and limited economic engagement, though these are unlikely to address core structural weaknesses.
Western policy faces a dilemma: to continue relying on sanctions and containment without effective tools to incentivise systemic reform. Iran’s persistence as a weakened but enduring state will shape Middle Eastern geopolitics, challenging conventional approaches to risk management and strategic planning.
Conclusion: A Regime That Can Endure but Cannot Recover
The Islamic Republic is unlikely to fall in the near term, and equally unlikely to restore economic viability or legitimacy. Entering a prolonged phase of managed decline, Iran’s future will be defined by how long a weakened state can govern a society it can no longer provide for, and how much instability the international system will tolerate. For businesses, policymakers, and investors, this means operating with a stable but structurally fragile Iran, where risks are persistent, and opportunities remain constrained.